Can an unpaid default be removed from a credit file?

While in some situations an unpaid default can be removed from a credit file, there are a number of things to consider before approaching a credit provider to remove a negative credit listing for an unpaid account.

In most cases a default can only be removed from a credit file based on an error or fault being found with the process the credit provider followed prior to recording the event.  Given this, if a default is unpaid and it is proven the necessary steps were not followed by the credit provider, the default can be removed even if there is money outstanding on the account the default relates to.

Having said that, it is important to note the removal of an unpaid default does not mean the debt is also removed.  The credit provider may still pursue the debt even if they have removed the default.  In most cases the Statute of Limitations states a debt is claimable for six years from when the debt became payable and this can be extended to 12 years if a Court Judgment is awarded against the borrower.

If a credit provider is forced to remove an unpaid default due to a fault or error with the listing process, they will often be motivated to protect the debt and can become aggressive with its recovery.  This could involve passing the debt to a collection company or commencing legal proceedings.

For this reason, unless there are special circumstances such as fraud, it is generally recommended the payment or settlement of the debt be part of the resolution when dealing with a creditor regarding the removal of a default.  There are two main reasons for this; firstly, a credit provider is more likely to be amicable and willing to consider a default removal request if the debt can be rectified.  Even in a case where the debt can be resolved, creditors will often only remove a default if grounds for this can be established.  Secondly there is little point in going through all the trouble of forcing a creditor to remove a default if the borrower is going to continue to be pursued for the debt and perhaps have a Court Action awarded against them, which will also be recorded on their credit file for a five year period.

With some debts there is an opportunity to negotiate and reduce the amount owed.  While there are several factors that can influence a debt settlement such as the age of the debt and the borrower’s economic situation, discounts of up to 80% can be achieved although 40% to 50% are more common.

As mentioned, in most cases a default cannot be removed based solely on the payment or settlement of the debt, however there is no doubt that also talking with a creditor about the resolution of an account in conjunction with a default removal proposal will go a long way to achieving a positive outcome.

John Dickinson
DebtX – Debt Mediation Services
www.debtx.com.au